Rebalancing is often carried out for client accounts or investment portfolios of the type offered by financial services providers such as American Express® and its competitors. One example of such a financial service is the Strategic Portfolio Services (SPS) Advantage or the Wealth Management Service offered by American Express®. Methods and tools for monitoring and rebalancing investment portfolios to maintain desired asset allocation are well known. Rebalancing typically involves adjusting investments to maintain desired asset allocation that adheres to a client's investment strategy. Also, rebalancing is carried out to account for the gains and loses experienced by securities or positions in the investment portfolio from time to time. Rebalancing allows a financial advisor, financial services provider or a client the opportunity to review and modify a client's account on an ongoing basis for improved stability, value and performance of the client's investment portfolio.
Existing methods typically require a client's initial asset allocation instructions which can include the funds, positions or securities the client wishes to invest in and the percentages of investment capital that are to be allocated to each fund or position, among other information. The asset allocation will vary from client to client depending on their tolerance for or aversion to risk, amount of capital invested, desire to limit exposure in certain industry sectors or fields, types or class of assets held, etc. The client can later authorize rebalancing by request or by manually completing rebalancing forms and submitting the forms to the financial advisor or financial services provider to carryout the selected choices and asset allocations, along with instructions on how frequently the portfolio is to be rebalanced back to the client's original asset allocation.
Existing rebalancing methods and tools can rebalance a portfolio automatically based on prior client instructions or on schedule determined by the client. The client can authorize automatic rebalancing at regular intervals, e.g., three months, six, twelve, eighteen, twenty four months, or some other client selected interval. The automatic rebalancing continues per the client's prior instructions or until the client modifies the rebalancing instructions. Typically, the client's portfolio is rebalanced to adhere to the client's original asset allocation.
In order to carry out rebalancing of investment portfolios, existing rebalancing methods often require manual retrieval and review of data and information for each of the client's investments, positions or committee on uniform securities identification procedures (CUSIP) designated securities, as well as the client's original asset allocation information to determine what rebalancing needs to be carried out. This can be a time consuming task for the financial advisor who must pull and collect this data and information. Once rebalancing is completed, the client will be informed of changes made to the account.
Automatic rebalancing tools and methods can be a rigid and inflexible way to rebalance investment portfolios. It is not always in the best interest of the client to automatically rebalance the account back to the original asset allocation. In some circumstances, it may be advisable to first conduct a market analysis and/or conduct a review of the client's financial condition and investment objectives and goals which may have changed since the client selected the original asset allocation. Existing automatic rebalancing tools and methods limit additional inquiries prior to automatically rebalancing of the client account.
Some rebalancing methods and tools are manual and require that a client specifically submit a rebalancing request and authorization each time rebalancing is desired. These rebalancing tools or methods could allow a client to submit new or revised asset allocation instructions. In such a case, specific authorization from the client to rebalance may occur on an infrequent or irregular basis or none at'all if the client is occupied and/or forgets to authorize and request rebalancing of the account. Further, the client may not have access to current market information or may not have time to review market information and thus may not be able to determine the optimum time for requesting a rebalance.
Further, existing rebalancing methods and tools typically carryout zero-sum rebalancing of the client portfolio. Zero-sum rebalancing typically refers to a portfolio rebalancing where the assets are re-allocated within the client's current positions or investments and the net value of investments remain the same. For example, if a client has $10,000 in investment A and $30,000 in investment B and the asset allocation or split selected by the client is 50% invested each in investments A and B, then the zero-sum rebalance would shift $10,000 from investment B to investment A, and the account net value would remain $40,000. It may not always be in the best interest of the client to reallocate assets between investments A and B. In some circumstance, it may be advisable and prudent to a particular client situation to shift the $10,000 to a third investment C rather than to investment A as required by the zero-sum rebalancing method. Thus, the zero-sum rebalancing tools and methods can be rigid and inflexible and limit the client's ability to rebalance the investment portfolio in the most advantageous manner for the client.
Additionally, existing rebalancing methods and tools have limited capabilities and features for financial advisors to provide additional assistance or financial services which would assist the client to determine ahead of time the benefits of rebalancing. Also, existing rebalancing methods and tools generally can not generate rebalancing hypothetical result reports for use by a financial advisor and client in determining whether or not rebalancing is appropriate.
There is thus a need for a rebalancing tool and method for monitoring a client account or investment portfolio and for selectively rebalancing a client account to meet a client model asset allocations. There is also a need for a rebalancing tool and method that can automatically monitor a client account and generate alerts when the client account is out-of-balance, and to enable a financial advisor to conduct rebalancing hypotheticals to determine whether to recommend that a client account be rebalanced.